Your New Invention May not be Commercially Viable

This post is the third of three key issues that every new inventor should consider.

The reality is that your new invention idea:

May not really be new

May not be patentable

May not be commercially viable

For this post, we'll focus on the fact that your new invention may not be commercially viable.

Your New Invention May not be Commercially Viable

As inventors, we love our inventions much like a mother loves and nurtures her baby. It is easy to make the supposition that:

Since my invention is new and unique

Furthermore, it appears it is patentable

Ergo, it is commercially viable

Just because your new, innovative invention is patentable, doesn't mean it is commercially viable. There are legions of unique and innovative new products that will never sell commercially.

Key Elements of a Commercially Viable Product

Product Requires a 5X Markup

A successful consumer product must have sufficient profit so that everyone in the marketing food chain profits. How much profit is that? A typical consumer product must have a 5X markup from cost of manufacture to the final retail price.

At first blush, that seems like a lot, perhaps excessive, but it is not.

For a simple example, consider a typical product that retails for $20 and the cost to manufacture the finished product is $4 (landed cost).

The retailer buys one from you at wholesale, keystone pricing, at about $10. The retailer then makes a gross profit when they sell your product at retail for $20.

Your gross revenue from the sale = $10

You must repay your “loan” for the product = $4

You must restock your inventory = $4

Your net profit from the sale = $2

That $2 net profit must cover all sorts of expenses within your business including office rental, your pay, taxes and many other items. Try the above using only a 4X mark up and your net profit falls to $0. So there would be no money to pay all of those non-COGS costs (Costs of Goods Sold). You would soon be out of business.

Your Product Must Be Retailer “Friendly”

It is easy to imagine selling 1, 10 or 100 or your product to retailers. But what about 1,000, 10,000 or 100,000? Your product must be easily “palletized” so that many can easily be fit onto pallets. Having generally cube shaped packaging is ideal for this purpose.

Also, your product must fit easily onto shelves or be hung from clips or hooks for smaller products for retail display. As such, or the “footprint” – the actual space it occupies on shelves – becomes very important. The larger the footprint, the less can be visibly stocked on a shelf at one time, plus it occupies valuable space the retailer would prefer to be partially filled with other products. Products with larger footprints often sell or “turn” more slowly. Often the retailer will simply return the entire remaining inventory to the vendor, something you definitely do not want.

Lastly, store employees today know very little about the products on the shelves.

This is unfortunate, but it is a fact of life. Therefore, the benefits of your product must be clear and easy to read on the packaging. A typical consumer will glance at a given product for 5 seconds before they turn to look at a different competitive product. Your packaging must be appealing, eye catching, so they will want to know more and, hopefully will buy your product instead of others.

No Assembly Required

Twenty years ago, many consumer products were sold with detailed assembly instruction booklets. Consumers readily expected to spend 45 minutes to 1 hour in assembling a new product before they could use it.

Not today.

The vast majority of new consumer products must be ready to use “out of the box” or have very simple assembly instruction featuring snap together parts or, at most a screwdriver and wrench to put together.

If your product requires “some assembly” and the competitive product on the shelf next to it requires little or none, they are going to buy the other product almost every time. Consumers simply no longer wish to spend any time “figuring out” how to assemble a new product.

Ironically, the same consumer who happily spends hours playing a video game or watching television, considers spending 15 or 20 minutes to assemble a new product “a waste of time.” Go figure.

Stay tuned!

1 Comment

Sorry Alan – I think your example is angled too heavily towards inventors who have simple products like your wallets (that most likely is made in China) and does not consider higher value more substantial inventions locally made. Which ‘works’ for you but what about the rest of us ? Assuming your invention IS new, whether it’s patentable or not – And the high possibility it will ‘never’ be taken up as a mainstream retail stock item, Or it’s not ‘sexy’ enough to sell via TV – SO WHAT – a smart inventor can make it a commercial success themselves by selling it direct to the customer via their own dedicated product web site – and by promoting it using social media. Its a far less financial risk than manufacturing and holding huge stocks in their garage in anticipation of large follow-up orders (that may or may never eventuate). Direct internet sales is more sensible especially since stock can be held at minimum levels or better still if the stock can be made locally ‘after’ receiving the order. Most importantly – direct sales are far more lucrative for the inventor in that they receive not just their own but BOTH the middle-man and retailer mark-ups. In other words the inventor will only need to own-finance, manufacture and sell one (1) unit – compared to 20 – 30 units sold by a retailer / TV marketing company to make the same profit. There is also the high risk of retailers returning your product and demanding a full refund if they don’t sell quickly enough leaving you with a garage full of useless stock. There is of course another advantages of selling direct – you are in control – you gain the experience of establishing your own small business (with no bad debts) and building a loyal customer base for your next invention.